Govt losing revenue due to GST: Bibek Debroy

Economic Advisory Council to the Prime Minister (EAC-PM) chairman Bibek Debroy on Tuesday said the government was losing revenue due to the GST, which should be revenue neutral with a single rate.

Speaking at an event organised by the Calcutta Chamber of Commerce in Kolkata, he however said that GST has led to a lot of simplification.

"The ideal GST is one that has a single rate, and it was meant to be revenue neutral.

"When it was introduced, there were some calculations by the ministry of finance then that said, in order to be revenue neutral, the average GST rate must be at least 17 per cent.

"The average rate now is 11.4 per cent. So because of GST, the government is losing revenue,” the eminent economist said.

Debroy said the public as well as members of the GST Council want the 28 per cent tax rate to come down, but "no one wants the 0 per cent and 3 per cent tax rates to go up".

"That way, we will never have a simplified GST," he said at the 'Special Session on Resilient and Self-Sufficient India'.

A "lot of abuse" of the GST provisions was also taking place, he said without elaborating.

On direct taxes, the EAC-PM chairman said the eventual goal of tax reforms should be the complete elimination of all exemptions.

Any exemption makes life more complicated, increases compliance costs and leads to litigations, he said.

“If the government needs to spend, it needs revenue... 10 per cent of GDP must be spent on health and education, 3 per cent on defence and 10 per cent on infrastructure.

"However, we as citizens pay around 15 per cent of GDP as taxes.

"What this means is we pay taxes at 15 per cent, but our demands and expectations from the government are to the extent of 23 per cent,” Debroy said.

“So, whether we like it or not, either we must be prepared to pay more as taxes or our expectations cannot be like - we get airports like in the West or get railway stations like in China,” he said.

The renowned economist also said the rate of population growth in India was slowing down sharply, and the burden of the aged will be a challenge for the country after 2035.

Social security for the aged can be managed if there is a balanced population pyramid, with young people coming into the labour force and their contributions financing the social security needs of the old, he stated.

“The annual rate of population growth now is 0.8 per cent.

"Beyond 2035, India will age very rapidly... Here is an example of a country like China, which will become old before it becomes rich... I want to mention that for India this is going to be a huge challenge.

"There are already states like Kerala where the burden of aged is exerting a very heavy toll,” Debroy said.

He said there is a cause for concern about the nature of jobs being created in the country, and the lack of correlation between skills and education.

“We need to create about 8 million jobs per year, we are creating about 5 million.

"The big issue is about the nature of these jobs, which are not productive enough and of low value,” Debroy added.